Optimal Liquidity Provision and Dynamic Incentive Compatibility
The paper analyses the problem of optimal liquidity provision in simple continuous-time general-equilibrium model under uncertainty. It argues that liquidity provision is subject to moral-hazard problems due to the unobservebility of households' characteristics and characterizes incentive-compatible deposit contracts as second mechanisms to provide liquidity.
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|Date of creation:||Feb 1996|
|Date of revision:|
|Publication status:||Published in Journal of Financial Intermediation, vol. 7 (2), April 1998, pp. 177-197|
|Contact details of provider:|| Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne|
Phone: ++41 21 692.33.20
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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